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BCA successfully tested a Plan utilization subsystem in conjunction with the Model A system at the Cincinnati Plan.

BCA and BHI have worked together to test the SSA-ORS medical coding dictionary process. The results of this effort have resulted in the approval for BCĂ to amend both Model A and tape-to-tape SSA bill submittal capabilities to handle narratlve diagnosis and procedural codes eliminating hard copy sample bills. BCA is trying to eliminate submission of hard copy bills altogether to SSA.


The direct and indirect costs (including overhead) of these activities in FY 1975 were $314,976 or 4 percent of total BCA Medicare expenditures.


The direct and indirect costs (including overhead) of total claims activitysystems activities in FY 1975 were $2,823,985 or 38 percent of total BCA Medicare expenditures.

Allowable Cost


BCA's percentage of allowed administrative cost, following HEW audits has, increased from 97.2 percent of claimed cost in fiscal 1967 to 99.1 percent in fiscal 1975. Overall, the closing agreements executed for all years reflected an allowance of 99.0 percent as of June 30, 1976.


BCA's responsibilities as prime contractor for establishing costing standards and furnishing guidance to the Plan are discharged through a 13-point program:

Medicare contract costing standards.
Technical councils.
Accounting manuals and administrative bulletins.
Accounting systems—development, implementation and maintenance.
Plan and staff training.
Review of program financial reports.
Field staff consultation and assistance to Plans.

Feedback process—cost and productivitiy analysis-administrative bulletins.

Medicare reviews of Plans-operational and financial.
Field audits-DHEWAA-GAO.
Feedback processes--results of audits.
Accounting standards—ASBCA-case library.

Legal counsel-legal affairs bulletins.
Our program is designed to ensure control of administrative costs by improving
Plans' capability and capacity in:

(1) Cost accounting, (2) budgeting, (3) reporting to management, (4) monitoring performance, and (5) analyzing variances.

The success of BCA's financial management programs is documented by the data presented at the beginning of this section.

BCA's program is designed to provide Plans with cost accounting standards and operating manuals. The program provides for compliance with the established costing standards through a series of cost accounting systems. BCA has developed and centrally maintains a computerized Standard National Accounting Program (SNAP) which has been adopted by 33 Plans and is being considered by 9 others. BCA has adopted and made available a computerized payroll and labor costing system (Pay II) which has been adopted by 7 Plans and is being considered by several others. BCA has also gained BHI's formal acceptance of the Value Computing System for costing computer operations. BCA's efforts to ensure accurate costing have also resulted in the adoption of new cost systems in many Plans. In addition, many Plans have installed other recognized systems (Johnson, Boole & Babbage, Cybernetics, etc.) for costing of computer operations. Other Plans have upgraded their payroll/labor costing systems through installation of MSA or self-developed packages. Equally important, other computerized systems for purchases, supply requisitions, service center operations, word processing centers, inventory control and property control have been added to ensure accurate and timely costing. We have also developed a technique to make other computerized systems available to Plans.

BCA also employs an audit and feedback mechanism for all program financial reports. This system provides for professional review of reports and statistical analyses to identify any aberrant data. The system also provides BCA and Plan management with cost and productivity analyses for directing and controlling operations.

BCA provides technical services to Plans through its seven regional offices. These services include staff training and workshops for cost, budget and audit personnel. These offices conduct problem-solving activities with Plans as identified by (1) desk reviews and financial analyses or by (2) Plan's requests for assistance.

BCA further provides in-depth reviews of selected Plans' Medicare operations and costing systems by its Medicare staff.

An important part of BCA effort is a monitoring and feedback system that is based upon the results of DHEWAA audits. This system provides for the identification of audit exceptions and causative factors. A number of communication systems and forums are used to communicate the audit exceptions to Plans for corrective action.

Before describing other details in these areas, the following table places a quantitative and statistical analysis of administrative costs into the record. This analysis will provide the subcommittee with data on the costs incurred and the materiality of costs.


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Note: Similar cost data for all intermediaries and carriers can be secured from the Bureau of Health Insurance.

BCA provides the prerequisite cost accounting standards to Plans through its negotiation of mutually acceptable standards with BHI. In general, the Federal Procurement Regulations for cost reimbursement type contracts form the primary standards. These basic standards are slightly modified by contract.

BCA provides for the concurrent review by legal counsel and the Blue Cross and Blue Shield Associations' joint accounting of proposed standards. It is our intent to determine appropriate cost accounting standards and it recognize generally acceptable accounting principles and standards of other controlling entities. Accordingly Plans receive appropriate accounting standards for each line of business.

We also provide guidance to Plans through the BHI manuals. BCA is a member of the technical advisory committee which works closely with the bureau on costing and reporting problems. BCA also contributes through Plans to the prior consultation process of BHI.

BCA's program for guidance and directions to Plans includes extensive use of Administrative Bulletins, Legal Affairs Bulletins and some operating manuals. These documents communicate directions, changes in policies or prescribe acceptable cost accounting procedures. BCA's

program also provides appropriate training for Plans in the contractual standards through regional and national meetings.

BCA maintains complete histories of prior audits, Armed Services Board of Contract Appeals decisions, and relevant BHI decisions. These facts provide the basis for directions to Plans.

Under the subject of allowable cost, the subcommittee requested specific information regarding our space or occupancy costs. That information is detailed in Appendix A of this statement.


The direct and indirect costs (including overhead) for these activities in FY 1975 were $775,453 or 11 percent of total BCA Medicare expenditure. An additional $62,597 was expended on internal BCA accounting.

Benefit Cost Containment-Utilization


To assure payment only for reasonable and necessary care, programs were instituted that resulted in:

A decrease in benefit payment per bill of 5 percent from 1973 to 1975, adjusted to 1967 dollars.

An increase in the denial rate of SNF claims from 5.5 percent in 1970 to 26 percent in 1974, with an estimated return rate on dollars spent of 10 to 1. The HHA denial rate and the outpatient denial rate primarily physical therapy also rose. A slight increase in inpatient denial rates has also been experienced because of reviews.


Efforts to assure proper expenditure of money for Medicare benefits have been among the BCA's major thrusts, Support of Plån medical review has included:

(1) Providing medical review manuals and systems.
(2) Providing information about national trends in review.
(3) Conducting on-site reviews.
(4) Issuing ABs clarifying procedures and policy.

Through prior consultation and formal comment, BCA has helped BHI and other HEW agencies-particularly the Office of Quality Standards and Bureau of Quality Assurance-to formulate policies and procedures related to medical review.

In helping Plans, BCA has often combined its privately funded support activities with those directed toward Medicare. That assured consistent application of benefit concepts; allowed sharing of administrative costs for all parties; and made the best talent available.

Some of the most pertinent ABs covered new utilization review requirements, UHDA, claims processing interfact with PSROs, and intermediary monitoring of PSRO decisions.

Policy decisions regarding various treatments and services for which claims have not been processed uniformly are now being developed by BCA and BHI. For example: 24-hour EKG, routine pathology gases, psychiatric programs, mobile heart team, alcoholic detoxification, hyperbaric oxygen, ostomy therapy, routine versus ancillary services, radioactive isotope, ultrasound scanning, prosthetic devices, biofeedback therapy, self-care units, cycle therapy, and psychiatric social services. Model Medical Review Manuals and Systems for Plans

Model medical review manuals and systems have been developed by BCA to improve:

Plan claims medical review activity.
Provider medical review.
Plan feedback to providers on the effectiveness of their review activities.
Support of implementation of the PSRO program.

Tools created by BCA to help Plan claims medical review include the computerized Plan Utilization Claims Screening System (versions 1 and 2); Plan Utilization Review Parameter Generation System; BCA Medical Terminology and Coding Training Program, Psychiatric Care Manual; and Level II Claims Review Manual. Feedback to Providers

In 1972, BCA bought rights to the Hospital Utilization Program health data system. With it, Plans can furnish extensive profiles to their providers. Eight Plans are using it. An additional six Plans employ either the Blue Cross Association Data System or the QUEST data system as well as Plan BCA developed systems.

The Joint Profile System, developed with the National Association of Blue Shield Plans, is an automated program for statistical reporting of health information in profile form. It differs from a health data system in that it can report both physician and hospital services and episodes of care. It is currently operational in six Plans and is being implemented in four others. Provider Medical Review and National Trends

BCA has developed two model medical review systems: the Patient Care Coordinator Program and the Model Utilization Review Plan.

In addition, a number of BCA activities meet Plan needs for information on medical review, including:

Plan utilization review program consultation. PSRO consultation. Newsletters. Utilization review reference manual. Utilization review training institutes. Health data system manual. Plan medical director's conferences. Presentations at Director of Federal Program meetings pertaining to UR and PSRO. Consulation With BHI and Other HEW Agencies

By collecting information from Plans, BCA provided formal comments on proposed rules concerning utilization review published in the November 29, 1974, and March 31, 1976, Federal Registers; additionally prior consultations were prepared pertaining to monitoring of PSÃO decisions, ÚHDA and PSRO/Intermediary claims.

In addition, BCA people have advised BHI and BQA through technical advisory groups or participation in task forces. Plan Review

In situations where Plans' performance areas have indicated aberrant data, Total Medicare Reviews of the Plan's operations have been conducted by BCA personnel to identify processing inefficiencies, duplicative and unjustified activities and to increase their productivity and reduce their costs. Since 1974, 10 such reviews have been conducted which have resulted in administrative cost savings and increased productivity of the Plans reviewed.

In addition to the Total Medicare Reviews conducted by BCA personnel, BCA has developed the Medicare Claims Self-Audit Manual for use by Plans to review and refine their own operations, increase productivity and reduce costs.

In situations where a Plan is experiencing a problem with a few areas of its Medicare operations, BCA has conducted a "mini-review of the Plan to identify the causes of the problem, be it high cost and/or low productivity. These reviews have resulted in demonstrable improvements in the Plans' performance in the areas reviewed.

Beginning in 1969, BCA began conducting level-of-care reviews in Plans to assure proper payment of claims for SNF and HHA benefits to prevent payment of non-covered care and to make sure covered care was given in the appropriate setting.

The reviews have continued and have grown into total claims processing reviews.


The direct and indirect costs (including overhead) for these activities in FY 1975 were $122,050 or 1 percent of total BCA Medicare expenditures.

Benefit Cost Containment-Audit


Plan audit programs continue to reflect a high (313 percent) rate of return on dollars spent on audits, in terms of identification of unallowable provider costs.

Proper allocation of provider costs to the program, through audit, has saved the program approximately $40,000,000 a year. Of 92,000 cost reports submitted to the government for all years, fewer than 1 percent were questioned.

Special cost report forms were developed for reporting Medicare data needed from home offices of chain organizations.


Policy Clarification

BCA has developed guidelines, procedures, policies and forms to solve problems in these areas:

Cost of maintaining religious personnel in hospital affiliated with religious orders (AB 242).

Reimbursement and audit of university related hospitals (AB 205).
Directions for dealing with hospital-based physicians (AB 288).

Guidelines for auditing and determining cost of government providers (mostly state and municipal hospitals) AB 206).

Uniform application of BHI policy regarding Medicare settlement payments in conjunction with the Economic Stabilization Program (AB 587).

Guidelines for modification of Medicare step-down cost finding schedules. Procedures

Manuals and booklets have been issued by BCA on these subjects:

Adoption of the periodic interim payment method of making interim payments to providers.

Modifications of existing cost reporting forms to reflect 1967 legislatives changes.

Modification of cost reporting forms to reflect 1972 regulation changes for providers with 100 or more beds.

Compilation of Provider Based Physicians regulations, instructions and procedures.

Standard audit program to be used in conjunction with desk reviews of providers' Medical cost reports.

Settling Medicare cost reports where one organization owns and/or operates a chain of providers (AB 707). Training and Cost Report Review

A major contribution by BCA to quality of reimbursement and audits has been its national training program for Medicare reimbursement personnel. There is a one-week school and a two-week session covering various phases of cost reporting and all other aspects of the program.

BCA also ran a continuing series of workshops and seminars on such subjects as:
SNF reporting forms and related reimbursement principles.
Changes as a result of 1967 amendments.
Hospital-based physicians.
Limited scope audit and desk review procedures.
Periodic interim payment.
Cost reporting for hospitals with 100 beds and those with fewer than 100.

Audit priority determination and procedures for settlement subject to audit. Innovative Procedures

In the last year, BCA has developed innovative procedures at Plans for processing provider cost reports and completing desk reviews.

Also important is BCA's role in reviewing cost reports from Plans. In the early years of Medicare, BCA reviewed every cost report. As report quality improved, BHI agreed that a sampling approach would be satisfactory. This system is now in operation and is being considered by BHI for adoption in transferring cost reports to BHI's central office.

In the last 12 months, BCA has answered 600 letters from Plans with a total impact on the program of $25,970,000.

Modified cost reporting forms were issued in 1975 for reporting Medicare costs for providers with 100 or more beds. In this connection, instructional material was prepared for release to providers and more than 35,000 copies of the instructional booklet have been issued.


Costs of these activities are included under audit and settlement, identified on page 9.

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